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HUDACO INDUSTRIES LIMITED - Announcement regarding the renewal of lease agreements with a related party

Release Date: 29/05/2019 10:42
Code(s): HDC     PDF:  
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Announcement regarding the renewal of lease agreements with a related party

HUDACO INDUSTRIES LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1985/004617/06)
Share code: HDC & ISIN: ZAE000003273
(“Hudaco” or the “Company”)

 ANNOUNCEMENT REGARDING THE RENEWAL OF LEASE AGREEMENTS WITH A RELATED PARTY

1. INTRODUCTION

   Shareholders are advised that Hudaco has renewed certain lease agreements with Dufomo
   Investments Proprietary Limited (“Dufomo”) in terms of which the Company will continue to lease
   premises from Dufomo as set out in section 3 below (the "Lease Renewals”).

   Mr GR Dunford, chief executive of Hudaco, is an 82% shareholder of Dufomo, which owns the premises
   currently occupied by Gear Pump Manufacturing, Joseph Grieveson and Dosco Precision Hydraulics,
   all business within an 85% held subsidiary of Hudaco.

2. RATIONALE FOR THE LEASE RENEWALS

   The rationale for the Lease Renewals is to provide continuity to the businesses mentioned in section
   1 above, which have been renting these respective premises from Dufomo for over 15 years. The
   buildings and structures on these premises were purposely built to suit the requirements of the
   respective businesses and the businesses had already occupied these premises before being acquired
   by Hudaco during 2013.

3. DETAILS AND TERMS OF THE LEASE RENEWALS

    A table setting out details and the terms of the Lease Renewals is set out below:
    Lessee                  Location      Area         Tenure        Monthly       Annual          Renewal
                                          (m2)                         lease   Escalation          clauses
                                                                    payments
    Gear Pump           15 Moody Ave,    3 831     2 years, 3    R191 550.00          8%     3 year renewal
    Manufacturing1    Epping 1, Cape                   months                                  option, with
                                Town               commencing                                  rental to be
                                                 1 April 2019,                              reset to market
                                                  terminating
                                                 30 June 2021
    Joseph              332 Aberdare     3 661     2 years, 3    R250 226.27          8%     3 year renewal
    Grieveson2        Drive, Phoenix                   months,                                 option, with
                     Industrial Park,              commencing                                  rental to be
                     Phoenix, Durban             1 April 2019,                              reset to market
                                                  terminating
                                                 30 June 2021
    Dosco             6 Impangela Rd,    2 400       3 years,    R148 928.16          8%     3 year renewal
    Precision          Sebenza Ext 6,              commencing                                  option, with
    Hydraulics3             Edenvale                 May 2019,                                 rental to be
                                                  terminating                               reset to market
                                                     30 April
                                                         2022
       Notes:
       1.  The premises of Gear Pump Manufacturing, a manufacturer and assembler of cast iron hydraulic
           gear pumps, comprise of 373m² of offices, inclusive of offices located in the factory and 2 469m²
           of factory and warehouse, 828m² of foundry and 161m² of ablutions space.

       2.  The premises of Joseph Grieveson, a manufacturer of ferrous and non-ferrous castings, comprise
           of offices, warehouse and foundry space, measuring 3 661m².

       3.  The premises of Dosco Precision Hydraulics, a supplier and repairer of hydraulic pumps and
           motors to the mining, industrial, mobile, marine and forestry industries, comprise of 515m2 of
           offices and 1 885m2 of warehouse space (including mezzanine of 153m2). The property is split into
           2 units, with unit 1 measuring 600m2 and unit 2 measuring 1 800m2.

       There are no outstanding conditions precedent relating to the Lease Renewals.

   4. FINANCIAL INFORMATION

       Hudaco incurs lease expenses of the amount set out in paragraph 3 above. The lease payments are
       deductible for tax purposes. There are no assets attributable to the Lease Renewals.

   5. CATEGORISATION AND SMALL RELATED PARTY TRANSACTION

       The entering into of the Lease Renewals is a “small related party transaction” in terms of paragraph
       10.7 of the JSE Limited (“JSE”) Listings Requirements, as Hudaco will be transacting with a “related
       party”, being Dufomo and accordingly no shareholder approval is required, but an independent
       fairness opinion must be obtained.

       The board of directors of Hudaco has appointed Merchantec Capital (the “Independent Expert”) to
       provide an independent fairness opinion on the Lease Renewals (the “Fairness Opinion”) in
       compliance with paragraph 10.7(b) of the JSE Listings Requirements. The Independent Expert has
       considered the terms and conditions of the Lease Renewals and is of the opinion that the Lease
       Renewals are fair insofar as Hudaco shareholders are concerned. The Fairness Opinion is available for
       inspection at the registered office of the Company, Building 9, Greenstone Hill Office Park, Emerald
       Boulevard, Greenstone Hill, Edenvale, for a period of 28 days from the date of this announcement and
       may be obtained on request from Hudaco’s Group Company Secretary at reanaw@hudaco.co.za.

Johannesburg
29 May 2019

Corporate advisor and Sponsor
Nedbank Corporate and Investment Banking

Independent Expert
Merchantec Capital

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